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Monetary and Fiscal Policy Interaction in Iran:
A Dynamic Stochastic General Equilibrium Approach
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Hossein Tavakolian *   , Javad Taherpour , Farzad Mohsenpour |
| Allameh Tabataba'i University , tavakolianh@gmail.com |
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Abstract: (3644 Views) |
Achieving the goals of price stability, sustainable economic growth, and the improvement of many economic variables require coordination between the monetary and financial authorities. In this study, a new modified Keynesian stochastic dynamic equilibrium general equilibrium model is introduced for Iran and in the framework of game theory, optimal policy of fiscal and monetary authorities are derived and estimated using Bayesian approach under a Nash equilibrium game based on the independent decision-making of two players, a Stackelberg game with both fiscal and monetary policy leadership and the co-operative game. The results suggest that the best welfare would happen if the two policymakers cooperate and put more weight on inflation and in general, this approach will have lower losses than other games. Therefore, the model recommends that the two policies pursue bilateral cooperation to achieve the common goal of controlling inflation and maintaining economic stability and to do so, prioritize inflation control. In addition, if monetary and fiscal policy makers do not cooperate, monetary policy leadership is likely to be the second priority, as this would be less harmful to both policy makers.
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| Keywords: Coordination, Fiscal Policy, Monetary Policy, Game Theory. |
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Full-Text [PDF 1510 kb]
(854 Downloads)
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Type of Study: Research |
Subject:
Special
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